getting credit will be increasingly difficult – Corriere.it

Janus is the god of beginnings and one of the most important deities in the Latin religion. Usually depicted with two faces, he can look to the past and the future. Macrobius and Cicero made it derive from the verb ire to go, because according to the two Roman scholars the world is always moving in a circle and starting from itself to itself it returns. A thought is not a truth. The risk that Germany, in the financial world, is proposing itself almost like Janus. Everything revolves around Berlin. With one difference: he looks to the past without understanding the future. In between is the complexity of the present. Let’s go in order. On the one hand the Northern countries are pushing the ECB to raise rates (50%) creating difficulties for almost all of Europe and for public debts, on the other they criticize Brussels on the new banking regulations. A view, at least, partial. Also seen the performance of the banks in the last week. Frankfurt has just confirmed its restrictive policy at its May meeting as well. raising the level of interest rates to 3.75%, and from here the risk of a credit crunch could seriously arise. Simply put, banks, thanks to the risk factor, would be less willing to grant loans. With heavy consequences for the European industry and for the institutes themselves.

The trend of loans in recent months

It should not be forgotten that the results of the credit sector last year are largely linked to the interest margin which grew thanks to the increase in rates in a recovering economy. If the cost of money were to increase too much, the request for credit by businesses would stop. We do not have a credit crunch situation but there is a reduction in credit for the corporate sector and a substantial slowdown for households, Ignazio Visco, Governor of the Bank of Italy said recently. According to Via Nazionale data, in March 2023, loans to businesses and households increased by only 0.5% (half of which is inflation) compared to the previous year. This evidence emerges from the Bank of Italy’s estimates relating to loans to businesses and households. As of February 2023, loans to businesses had fallen by 0.5% and loans to households had grown by 2.5%. The contraction is also confirmed by the numbers of the SME Fund. However, making predictions is not easy. It will be necessary to see how much interest rates will rise and whether this will amplify the decline in investments, employment and consumption. The same ECB data demonstrate that the supply of credit in the Eurozone is slowing down. Then what will happen? From whichever point you take the complicated situation. To date, our forecast is a credit crunch,” said BNY Mellon Im team leader. — The banking crisis will cause a tightening of credit conditions, generating the same effects as a 50-100 basis point increase in rates. With the effect of sending the main economies into recession in the second half of the year.

How did SMEs move?

The increase would put commercial institutions in difficulty, which would be forced to strengthen their balance sheets by issuing less credit. According to Goldman Sachs, the turbulence alone will account for about 0.3% of the Eurozone’s GDP. In short, a vicious circle. The situation gets worse if you look at the world of small and medium-sized enterprises. According to the data processed by the NSA research office, the reality that supports banks in accessing the guarantees of the SME Fund, the volume of loans from institutions and the fintech world have followed different dynamics. The amount provided by banks soared, that of fintechs exploded. it is clear that, faced with a rise in the cost of money, SMEs have turned to alternative solutions. Born on the back of the 2008 financial crisis, fintechs have also reached maturity in Italy. And they are watched carefully for their added value which lies in technologies and in the granular analysis capacity which makes financing to small companies more available. The problem is, as evidenced by the Credimi case, capital solidity. If the risk of bankruptcy of SMEs increases, fintechs would risk being involved.

The possible moves of the ECB and the risks for the system

Another moment of reflection for the hawks of the ECB? Frankfurt still has some way to go to bring inflation back to the 2% target, explained the president, Christine Lagarde, adding that the length of the journey will depend on a number of factors and in particular on the impact on credit . Isabel Schnabel, a German member of the board, also seemed more cautious and took no position on the size of the increase. A sign that the banking tensions, in particular the one involving Deutsche Bank, could make the board more cautious. However, the ECB and EBA have already requested new data on exposure to rate hikes in the context of the forthcoming stress tests. The risk of a perfect storm. Then in June the system will have to return almost 500 billion to the ECB as part of long-term refinancing (LTTRO). Frankfurt’s budget will shrink and the consequences will be felt on government bonds, as banks have also used these funds to buy government debt. Between November and March, 980 billion have already been repaid. Next month, the institutions of the Eurozone will have to repay around half of the remaining 1,100 billion in ECB loans. Redemptions will weigh on liquidity ratios if no other sources are found in the collection. According to the Bank of Italy, the institutions will use the reserves with the Eurosystem and the sale of liquid assets, while just over half will be replaced with recourse to the market.

Berlin calls for more flexibility on banking crises

If intransigence on rates does not waver, Berlin is instead pushing for greater flexibility of the Commission on banking crises. Dissent which, however, also agrees with the Abi. Brussels has widened the scope of resolutions. Until now they were limited to large groups, now they include medium-small institutions of regional importance. According to the German government, this closes the banks in a cage that is too rigid and prevents flexible solutions. The European model, which is characterized by a high decision-making complexity, would differ too much from the American one which decides on a case-by-case basis which tools to use. Certainly in the USA the legislation is more flexible also because the confederation thinks like a single state. It should also be added that, after the bankruptcy of Silicon Valley Bank, the Signature Bank and the crisis of the First Republic Bank, the same American administration is thinking of reintroducing stricter regulation. According to Berlin, the Commission has not changed the basic approach based on resolutions which include mechanisms such as bail-in. There has not been a complete green light for protection funds in preventive interventions, despite the sentence on Tercas. A decision that especially puts the German system in difficulty, which still remains very fragmented and fragile, especially due to the profile of the savings banks. Berlin’s position is clear: competition must take second place to stability. Of course, it is difficult to be against this reasoning. Germany has to explain why rigor is the only compass when looking at the public finances but not when evaluating the solidity of the credit system. As always, Berlin remains a two-faced Janus. No, almost cross-eyed. For the Reichstag there seems to be no European way to financial stability but only national convenience.